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Securities Law Issues

April 13, 2006

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The small business owner must consider numerous legal issues before starting business operations if he or she is seeking to effectively limit liability in the business structure. One issue particularly worthy of some discussion is securities law, as it affects the issuance of interests in the limited liability company (LLC) and corporation.

An awareness of securities issues is essential to prevent future claims against the business and to allow the business owner to exploit capital markets as the business seeks to expand.

Federal and state securities rules are complex. While this discussion is not intended as complete coverage of this topic, the small business owner interested in asset protection should, at the very least, understand:

• whether or not the entity is issuing "securities"
• whether the offering must be registered or may be exempt
• Regulation D, Rule 504/SCOR (small corporate offering registration) offering--a common route small businesses use to raise up to $1 million from the public
• an alternative route termed a Regulation A/SCOR offering can be used to raise $1 million from the public, with the added advantage of being able to "test the waters" before actually making the offering
• Internet offerings of securities

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